-- Revenues of $97.3 million were within the range of $96-$98 million,
announced by the Company on May 9, 2007. These results represented a 9.5%
decrease in revenues from the previous quarter and a 5% decrease from the
comparable quarter of the prior year. This decrease was caused primarily by
the impact of a transition by two customers to "just-in-time inventory"
arrangements during the quarter and the continued utilization by certain
customers of excess inventories of products designed for SAN applications.
-- Revenues from the sale of optical products were $88.4 million in the
quarter ended April 30, 2007, a decline of 9.8% from $98.0 million in the
previous quarter and 3.9% from $91.9 million in the comparable quarter of
the prior year. Revenues from the sale of network test and monitoring
products were $8.9 million, a decline of 6.6% from $9.5 million in the
previous quarter and 15.1% from $10.5 million in the prior year.
-- Shipments of products designed for 10-40 Gb/s applications totaled
$14.9 million, up 28.5% from $11.6 million in the previous quarter and up
172% from $5.5 million in the comparable quarter of the prior year.
-- With the decrease in total revenues to their lowest quarterly total
during the fiscal year, gross margins declined sequentially from the prior
quarter, but were still higher than in the first half of the year due to
the effects of ongoing cost reduction efforts and a favorable shift in
product mix. Non-GAAP gross margins exclude stock compensation expense,
inventory reserves and certain other charges, mostly of a non-cash nature.
-- Cash and short-term investments, plus other long-term investments
which can be readily converted into cash, totaled $123.7 million at April
30, 2007, down from $135.9 million at the end of last quarter. The decrease
was primarily due to the completion of the acquisitions of AZNA, LLC and
Kodeos Communications, Inc. during the quarter, which involved the use of
approximately $13.7 million in cash. The Company has classified certain of
its investments as long-term based on its intent to hold these securities
until maturity, although they can be readily sold if required.
Non-GAAP Financial Metrics - Fiscal Year Ended April 30, 2007
-- Revenues of $419.2 million represented an increase of 15.1% over
$364.3 million in the prior year.
-- Revenues from the sale of optical products were $381.4 million, an
increase of 17% from $326.0 million in the prior year. Revenues from the
sale of network test and monitoring products were $37.8 million, a decrease
of 1.5% from $38.3 million in the prior year.
-- Shipments of 10-40Gb/s optical products totaled $40.3 million, up 123%
from $18.1 million in the prior year.
-- Gross profit on a non-GAAP basis increased 29% on a 15% increase in
revenues for the fiscal year due in part to a favorable shift in product
mix to more profitable longer distance telecom and metro Ethernet
applications and a vertically integrated business model where higher
shipment levels are accompanied by a modest increase in manufacturing
costs. Non-GAAP gross margins exclude stock compensation expense and
certain other charges, mostly of a non-cash nature.
"Despite year-end problems with customer supply chain and excess inventory
issues, I think we made tremendous progress on a number of fronts in the
last fiscal year," said Jerry Rawls, Finisar's CEO. "We rolled out a
number of new products for 10 Gb/s and WDM applications and strongly
increased our sales to the telecom equipment industry. Revenues from the
sale of 10 Gb/s and 40 Gb/s products increased 123% last fiscal year and we
believe revenue growth for these products in fiscal 2008 will generally
remain on that same trajectory. In addition, gross profit and gross
margins were up substantially from the prior year on a non-GAAP basis.
"On the technology front, the acquisitions of AZNA, LLC and Kodeos
Communications, Inc. at year-end added unique technologies for long
distance optical transmission. We believe these new technologies will
enable us to develop products for long haul telecommunications, a market we
haven't served in the past."
Initial Findings of Audit Committee Review of Stock Option Practices
Finisar also announced the initial findings of its Audit Committee's review
of the Company's historical stock option granting practices. On November
30, 2006, Finisar announced that, following an initial voluntary review by
management of a number of stock option grants, the Audit Committee of its
Board of Directors had commenced an investigation of the Company's
historical stock options granting practices. The Audit Committee is
comprised of three independent, non-employee directors. The Audit
Committee subsequently conducted an investigation with the assistance of
independent legal counsel and an independent accounting firm engaged to
provide forensic accounting services and reported its initial findings and
recommendations to the Board of Directors.
The investigation reviewed stock option grants to officers and directors,
existing employees and new hires, including grants issued in connection
with acquisitions, during the period from November 1999 to September 2006.
The investigation involved the analysis of thousands of documents and
hundreds of thousands of electronic mail and document files, as well as
interviews of 32 individuals, including current and former directors,
officers and employees. All Company personnel cooperated fully with the
investigation.
The Audit Committee made the following key findings:
-- There was no evidence of malfeasance on the part of any present or
former officer, director, or employee relating to any Finisar options
grant.
-- No present or former member of Finisar's board or its management
engaged in self-dealing with respect to option grants.
-- Options to directors and officers were properly approved and granted
by the Board or the Board's Compensation Committee.
-- The measurement dates for a number of option grants differed from the
recorded grant dates. Those errors generally resulted from a deficient and
poorly documented process as well as a lack of attentiveness and a lack of
thorough understanding of relevant accounting rules on the part of the
individuals involved in the granting process.
The Audit Committee found administrative issues in connection with the
annual grants to existing employees. The grant dates for most of these
annual grants were selected before the lists of options to be granted had
been finalized. In all but one year between 2000 and 2005, there was
inadequate contemporaneous documentation to verify the dates selected for
the annual grant, and, in one case, an earlier date with a more favorable
price was selected retrospectively for the annual grant.
In the case of grants to newly hired employees and employees hired in
connection with Finisar's acquisitions, the Audit Committee found
deficiencies related to the process. This resulted in a few instances
where grants were delayed and a more favorable price resulted from the
delay, and a few instances where an earlier date with a more favorable
price was selected retrospectively for a grant. Many of these grants
lacked contemporaneous evidence of grant date selection. The Company
personnel involved in selecting the grant dates did not benefit from these
grants.
Based on the results of its investigation, the Audit Committee concluded
that the measurement dates for a number of stock option grants differed
from the recorded grant dates for such awards and that the Company will
need to restate its historical financial statements to record charges for
compensation expense relating to these past stock option grants and the tax
impact related to such adjustments. The Company's management, in
conjunction with the Audit Committee, is in the process of finalizing
revised measurement dates, determining the amount of the non-cash charges
for compensation expenses, the resulting tax impact (which may result in
additional cash tax liabilities), and the accounting impact on its
financial statements for each fiscal period going back to fiscal 2000. The
Company intends to complete its assessment and announce the results at the
earliest practicable date. Although the amounts of the charges have not
been determined at this time, such charges will likely be material with
respect to prior fiscal periods from 2000 through 2007.
Recommendations of the Audit Committee as to Remedial Measures
In August 2006, prior to the internal review that led to the investigation,
Finisar changed its policies and procedures for granting stock options to
provide that all stock-based awards are generally to be granted by the
Compensation Committee of the Board of Directors and, except in special
circumstances, all grants are to be made at regular quarterly meetings of
the Compensation Committee. The effective date of each quarterly grant is
the later of the third trading day following Finisar's public announcement
of its financial results for the preceding quarter or the date of the
meeting.
In connection with its investigation, the Audit Committee also recommended
that the Board consider, and the Board of Directors unanimously adopted,
certain remedial measures, including the following:
-- The implementation of a cross-functional training program for certain
key employees concerning (i) the Company's equity compensation programs and
related improvements in equity compensation controls, processes and
procedures, (ii) the accounting implications of the Company's equity
compensation programs and (iii) the legal implications of the equity
compensation programs.
-- The appointment of a designated finance department employee to be
responsible for the accounting for stock options and other forms of equity
compensation.
-- The adoption of additional policies to assure that grants will be
recorded promptly in the Company's option accounting database, and that
grantees will receive prompt written notification of their grants.
-- The adoption of policies to assure that there will be a specific date
to complete the generation of a list of recommended equity grant amounts
prior to the submission of the recommendations to the Compensation
Committee for approval.
-- Implementation of a requirement that the Company's Internal Audit
Department review the Company's compliance with the controls and procedures
regarding equity compensation at least annually and report the results of
its review to the Audit Committee.
The Audit Committee and the Board of Directors will consider the need for
additional remedial action upon completion of the Audit Committee's
investigation and the restatement of the Company's historical financial
statements.
Conference Call
Finisar plans to review its preliminary fourth quarter results and discuss
its current business outlook during a conference call for investors at 5:00
p.m. EDT (2:00 p.m. PDT) today, June 12, 2007. The call will be broadcast
live over the Internet on the Investor Relations section of Finisar's web
site, located at www.Finisar.com. To listen to the Webcast, interested
investors are encouraged to log onto the broadcast at least 15 minutes
prior to the call. Participating in the call will be Jerry Rawls, Finisar's
President and CEO, and Steve Workman, Finisar's CFO.
Non-GAAP Financial Measures
The Company provides supplemental information regarding the Company's
operational performance on a non-GAAP basis which excludes various non-cash
and cash charges, principally related to acquisitions, restructuring
activities and financing transactions. Non-GAAP gross profit and non-GAAP
net income (loss), as reported by the Company, give an indication of the
Company's baseline performance before gains, losses or other charges that
are considered by management to be outside of our core operating results.
While non-GAAP financial measures are not in accordance with, or an
alternative for, generally accepted accounting principles in the United
States, the Company's management uses this information for the purpose of
evaluating the Company's historical and prospective financial performance
in the ordinary course of business. The Company believes that providing
this information to its investors, in addition to the GAAP presentation,
allows investors to better evaluate the Company's progress over time and
its financial results in comparison to other companies with whom it
competes.
Safe Harbor Under the Private Securities Litigation Reform Acts of 1995
The statements contained in this press release that are not purely
historical are forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, including statements
regarding Finisar's expectations, beliefs, intentions, or strategies
regarding the future. All forward-looking statements included in this press
release are based upon information available to Finisar as of the date
hereof, and Finisar assumes no obligation to update any such
forward-looking statements. Forward-looking statements involve risks and
uncertainties, which could cause actual results to differ materially from
those projected. These risks include those associated with the rapidly
evolving markets for Finisar's products and uncertainty regarding the
development of these markets; Finisar's historical dependence on sales to a
limited number of customers and fluctuations in the mix of customers in any
period; ongoing new product development and introduction of new and
enhanced products; the challenges of rapid growth followed by periods of
contraction; and intensive competition. These risks and uncertainties also
include the extent to which additional stock-based compensation expense
will be recognized as a result of the ongoing review of the Company's stock
option granting practices; the timing of the Company's filings relating to
any restated financial information; the impact of any regulatory review of
the disclosures in those documents; and the potential impact of related
civil litigation. Further information regarding these and other risks
relating to Finisar's business is set forth in Finisar's Annual Report on
Form 10-K and other reports as filed with the Securities and Exchange
Commission.
About Finisar
Finisar Corporation (Contact Information: Contact: Steve Workman Chief Financial Officer 408-548-1000 Investor Relations 408-542-5050 investor.relations@Finisar.com